: ‘The inadequacy of current consumer protections is unacceptable’: Payment apps like Zelle are too easy for peer-to-peer scams, Democrats tell CFPB

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It should be easier for consumers defrauded via popular instant payment services like Zelle to seek redress, since money-transfer scams are reportedly growing more common, a group of Democratic lawmakers says.

Six Senate Democrats — Bob Menendez of New Jersey, Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio, Jack Reed of Rhode Island, Raphael Warnock of Georgia and Catherine Cortez Masto of Nevada — wrote to the Consumer Financial Protection Bureau this week to urge the agency to do more to protect users of the same digital payment networks often touted for their convenience and speed. 

“Given the sheer numbers of consumers using instant payment services such as Zelle and the hundreds of billions transferred through these platforms each year, the inadequacy of current consumer protections is unacceptable,” they wrote in the July 20 letter to CFPB Director Rohit Chopra.

As it stands right now, the senators wrote, federal law concerning electronic transfers only protects scam victims if the customer was tricked into giving their information to someone who then initiated a money transfer themselves. That means people defrauded by someone tricking them into sending money directly to the perpetrator online aren’t covered.

As a result, banks and payment systems have “sought to avoid providing reimbursement when their customers” are duped, the senators said.

‘To be made whole, consumers now must beg their scammer to return their money, or they must seek voluntary reimbursement from their bank. Neither alternative holds much certainty.’


— six Senate Democrats in a letter to the CFPB

To remedy the issue, the CFPB could clarify in certain circumstances that payments stemming from these fraudulent transactions are an “error” that financial institutions, not the tricked consumer, are responsible for correcting, the senators said. Additionally, the CFPB could say the scam payments are classified as an “unauthorized electronic fund transfer” under the Electronic Fund Transfer Act.

Both of these options are within the agency’s existing authority, the senators said.

“These kinds of approaches would provide more consistent and fairer outcomes than the current rules, which offer no protections against the common scams and frauds that have proliferated on instant payment services like Zelle,” the senators wrote. “To be made whole, consumers now must beg their scammer to return their money, or they must seek voluntary reimbursement from their bank. Neither alternative holds much certainty.”

But the Consumer Financial Protection Bureau may already be on its way to reform. The Wall Street Journal reported this week that the agency plans to issue new guidance soon, potentially stating that fraudulent transactions — even if approved by the consumer — are unauthorized, a move that could lead to more customer reimbursements down the road.  

A CFPB spokesperson told MarketWatch that the agency received the senators’ letter and appreciated their “engagement on this issue.” 

Meanwhile, the network operator of Zelle, Early Warning Services LLC — a fintech company owned by seven of the country’s largest banks — told MarketWatch the platform has “helped millions of consumers in their everyday lives,” and that “protecting consumers is one of our top priorities.”

“As a network, we constantly adapt consumer protection measures to address the dynamic and evolving nature of deceptive activities fraudsters employ,” the company said.